The traditional way of doing business at a dealership is for the customer to choose a vehicle according to its sticker price, or perhaps their perfect-world monthly payments. The customer is not able to afford the highest-priced item they will ever purchase until the final step of the transaction.
A better way to find out what price range they are able to afford is to look at the homes of people who own them. Both the customer and salesperson will be able to look for vehicles within that range.
If the dealership doesn’t address affordability upfront, it is likely to endanger the deal later on, says Matt Lasher, West Herr Auto Group marketing manager. He gave an example, April 7, of a customer that selects a Cadillac Escalade and then has the F&I department cancel the deal.
Everyone ends up feeling frustrated, and there is a lot of pain because it wasn’t possible to afford the necessary services.
“This is a big, massive blind spot,” Lasher stated.
Many dealers assume they only deal with top customers, Lasher said. Even West Herr fell into this trap.
Lasher stated that it is a “huge and hugely huge misconception” for customers to believe they don’t have budget sensitivities.
The latest Experian data indicates that % of vehicle buyers and lessors in the fourth quarter 2021 had at least a 661 score. This is the level the credit bureau considers prime.
This means 35 a percentage of the market has poor credit or was in the middle. Experian stated that 15 % of those customers had subprime credit or were deep-subprime, with scores of 500 and lower.
Lasher suggested that many customers who appear to be prime might struggle with affordability. He suggested that they might be buying a car for the third time or are owing significant student loans.
Lasher stated that dealerships do not run credit upfront because the sales personnel tend to follow the customers’ lead and take the shortest route. Lasher says that a salesperson might simply tell a customer, “Let’s take a look at this Escalade,” rather than trying to determine if the purchase is feasible.
A salesperson might ask the customer if they have ever owned one, or what car is being traded in.
” The dealers did a fantastic job in giving customers the price but are now holding off on financing,” Pete MacInnis of eLEND Solutions told Automotive News at the NADA Show.
In real estate, buyers shop for houses they are preapproved to buy, Lasher stated. He said that in “Carland”, consumers send leads to dealers who then try to make it work.
Lasher advised dealership staff to use the opportunity to address affordability concerns and suggest vehicles that are affordable based on this amount.
Joe St. John (StoneEagle senior vice president for business development) shared a NADA study showing that less than five percent of websites of dealers had a payment calculator. He said that 2021, had a higher percentage than 90.
MacInnis criticized dealerships for not offering the best possible payment option to customers online. The customer arrives at the shop and “all the things the customer ordered online does not happen.” “
An alternative strategy is for dealers to provide a soft credit pull upfront. This credit pull provides less information than the “hard” pull but doesn’t impact the customer’s credit score. It still allows dealers and customers to get a feel for what the customer can do.
Ken Hill is the managing director for 700Credit. He told Automotive News that his two soft-pull products are among its most popular. He said they are meant to be used in the middle of sales to remove the end-of the process “mess”. He called it crucial in digital retailing for a soft draw to be run first. He said, “It eliminates that friction.” He said that dealers can have better conversations with their customers because of it.
MacInnis stated that lenders are also to blame for slowing down the process.
Artificial intelligence replacing traditional, predictable rate sheets has caused some creditors to hold off on offering terms until they can see the final negotiated proposal from the dealership and customer.
” “That’s an enormous disconnect,” he stated.